Meta’s stock deemed a high-conviction buy at Citi, as strategy remains ‘underappreciated’

“Our proprietary checks and tracking of Reels monetization are key differentiators to our research,” Josey wrote Friday, as he added Meta META, +0.14% to Citi’s “focus list” of bullish stock picks. His analysis of advertising load on Meta’s Reels platform indicates that the company is ramping monetization of the content format and resonating with advertisers there. 

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His revenue expectations, already “near the high end of consensus,” could end up conservative, he wrote. That’s because “Meta’s product-led innovation strategy is underappreciated and should lead to accelerating revenue growth through ’23 and into ’24.”

Josey is likewise upbeat about Meta’s ability to recognize margin improvement as the company renews its focus on its core social-media apps, even while continuing to invest in metaverse initiatives. 

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His expectations for earnings “are similarly at the high end of the Street as we see Meta has taken significant cost out of its operations and realized new efficiencies that should drive structurally improved go-forward margins as revenue growth reaccelerates,” Josey wrote. 

Meta shares have exploded 120% higher so far this year, but Josey thinks the rally still has legs. His price target on the stock is $315, 34% above current levels. Josey’s “bull case” target is $420 and assumes Meta would be able to post 16% revenue growth next year. He rates the stock a buy.

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Josey’s optimism about Meta comes as Citi is generally upbeat about the communications services sector, having upgraded the sector to overweight during the second quarter. Citi sees Meta as “best positioned within Online Advertising as revenue growth can reaccelerate, profitability is improving, and revenue acceleration drives incremental margin.”

Citi analysts also added shares of American International Group Inc. AIG, +0.44%, Tradeweb Markets Inc. TW, +0.01% and Ultragenyx Pharmaceuticals Inc. RARE, -0.39% to the “focus list” Friday.